Energy firms could be referred to the Competition Commission if they do not comply with the new system, Ofgem said.

"Consumers must have confidence that energy companies are playing fair at a time when they are being asked to foot the £200bn bill to pay for the investment Britain needs to ensure secure and sustainable energy supplies," said chief executive Alistair Buchanan in a statement.

One supplier, Scottish Power, will face an investigation into its pricing regime, Ofgem said.

Consumers should not expect to see a drop in prices as a result of the review

That investigation is in addition to an ongoing Ofgem investigation into British Gas, EDF Energy and Npower into how they handle consumers' complaints.

Ofgem is also still investigating possible mis-selling by EDF Energy, Npower, Scottish Power, and Scottish and Southern Energy.

"In response to customer demand, there is now a wide range of energy products available - such as green tariffs and fixed tariffs - to meet the diverse needs of different customers," said Christine McGourty of the energy industry body Energy UK.

"If energy companies are not setting out these options clearly enough then this is something that should be addressed."

Long-term deals

Case study

Brian Snow worked for an energy company for his entire career and says that he does not understand his energy bill.

"I do not understand the tariff that I am on and cannot compare the different options and companies.

I do an annual check of my costs but I rely on one of the comparison companies to tell me which company and which tariff is best for me.

However, the 'best' tariff never seems to last for long and my bill always seems to increase.

I pity old or disadvantaged people who do not have a computer or the computer literacy to use the comparison sites.

If I, as an electrical engineer with a degree, cannot understand these tariffs - how can they?"

The regulator also wants to ban automatic rollovers of fixed contracts.

Some customers pay a set price each month for their energy over the period of a contract, irrespective of price changes for other customers.

Ofgem wants to ban suppliers automatically renewing these deals so customers are not repeatedly tied in to long-term deals.

A similar ban on automatic rollover contracts for land line telephone lines was proposed by communications regulator Ofcom earlier this month.

Instead, customers should default back to the standard tariff, unless they actively choose another fixed-term deal, it said.

Watchdog Consumer Focus welcomed Ofgem's review of the energy market.

"Companies are now on a very short leash," said chief executive Mike O'Connor.

"We welcome the explicit statement from Ofgem that the energy market is fundamentally failing consumers and that comprehensive and determined action is necessary to set it on the straight and narrow."